A banking crisis is looming as banks lost $870 billion in deposits over the past 18 months, with unrealized losses on investments rising to nearly $550 billion in Q2 2023.

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This liquidity strain might prompt banks to tighten lending, potentially making it more challenging for individuals and businesses to access credit.

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Banks’ Ongoing Demand for Fed’s Emergency Funds at Near-Record Level

US money market funds saw a $6.3BN inflow this week, nearing record highs after a previous outflow. Retail funds increased by $7.8BN, but institutional funds declined by $1.5BN. The Fed’s balance sheet shrank by $22BN, its smallest since June 2021. The emergency funding facility use remains at a high of $108BN. Concerns grow as banks might face a $108BN deficit soon, possibly leading to prolonged use of the “emergency” facility in an election year.

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